JOHANNESBURG: South Africa's rand fell 1 percent against the dollar on Tuesday to its softest level in nearly a week, after the release of data showing the economy shrunk in the first quarter of the year, raising the spectre of a recession.
The data undermines the case for more interest rate hikes this year after the central bank last lifted its benchmark rate by 50 basis points in January.
The rand hit a session low of 10.4690 to the dollar, its weakest since May 21 according to Thomson Reuters data, and was at 10.46 by 1537 GMT, representing a 1.02 percent fall from Monday's close in New York.
Gross domestic product shrank 0.6 percent quarter-on-quarter in the first three months of the year after a 3.8 percent increase in the final quarter of 2013, Statistics South Africa said.
GDP was dragged into negative territory by a 24.7 percent plunge in mining production and a 4.4 percent fall in factory output.
"Essentially the GDP move led to an extension of rand weakness that had started earlier on in the session already," said ETM market analyst Sean McCalgan.
He added that this went against the current global environment which favours riskier but high-yielding emerging market assets.
"We'll probably see this rand weakness slowly start to abate towards the end of the week," McCalgan said.
Government bonds edged higher after a fairly well supported weekly action, and yields inversely dipped lower.
The yield for the benchmark 2026 note was down 1.5 basis points at 8.175 percent while that for the 2015 instrument fell 2.5 basis point to 6.605 percent.
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